Demographics only explain a small proportion of the variation in inflation and asset prices over time and across countries, according to Neill Nuttall of Goldman Sachs Asset Management. Conventional wisdom has long predicted that a rapidly aging population will have an outsized impact on assets as retiring baby boomers, for example, sell their stocks in favor of fixed income and contribute to disinflationary forces. But after adjusting for rising life expectancies, demographic changes on inflation and growth are more muted than previous studies would suggest and, instead, will be modestly supportive for US inflation and modestly negative for equities and bonds, says Nuttall who outlined findings from a recently published Global Portfolio Solutions paper, Much Ado About Something? Demographics, Inflation and Asset Prices. “The business cycle still remains the key driver of asset prices in coming years,” he notes.

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Neill Nuttall

With improving health, with extended life expectancy, we find that people’s behavior is changing both in terms of their supply to the labor force, but also their consumption patterns...And so it’s extending the period of savings into risk assets, it’s extending the time beyond which they start to reduce risk…This is changing significantly the pattern from that which we saw 20 or 30 years ago.